exceptions - elephant


I often get asked about exceptions to the 10% early distribution penalty for distributions taken from Traditional and Roth IRA accounts before reaching 591/2. Rather than trying to explain this in my own words I think it is best to give information taken directly from the IRS website:

Topic 557 – Tax on Early Distributions from Traditional and Roth IRAs

To discourage use of IRAs for purposes other than retirement, the law imposes a 10% additional tax on early distributions from Traditional and Roth IRAs unless an exception applies. Generally, early distributions are those you receive from an IRA before reaching age 591/2. The 10% additional tax applies to the part of the distribution that you have to include in gross income. It is in addition to any regular income tax on that amount.

Distributions that you roll over or transfer from another IRA or qualified retirement plan are not subject to this 10% additional tax.

There are exceptions to this 10% additional tax for early distributions that are:

  • made to a beneficiary or estate on account of the IRA owner’s death
  • made on account of disability
  • ¬†made as part of a series of substantially equal periodic payments for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary
  • qualified first-time home buyer distributions
  • not in excess of your qualified higher education expenses
  • not in excess of certain medical insurance premiums paid while unemployed.
  • not in excess of your unreimbursed medical expenses that are more than a certain percentage of your adjusted gross income
  • due to an IRS levy, or
  • a qualified reservist distribution

Refer to Publication 590-B, Distributions from Individual Retirement Arrangements, for more information on these exceptions.